Why this bull market will continue

Derek Massey, of HSBC Global Asset Management, discusses his January 2018 outlook

Why this bull market will continue
Early 2018 is prediction season as advisors and analysts play Nostradamus in putting an end date on this Bull market.

But Derek Massey, CFA, head of portfolio management, private investment management at HSBC Global Asset Management (Canada), believes you can’t measure economic expansion on a clock and that there are no signs of an impending recession.

While tempering his previous “Goldilocks” outlook, he expects the economy to deliver more moderate growth at a “little less than large double digits”.

He highlighted synchronised global growth, corporate earnings keeping pace with equity markets growth and the filter effect from US corporate tax cuts as reasons to remain upbeat.

He added that typical factors that drive recessions – significant monetary tightening, economic imbalances and external shocks – are just not present and investors will see the Bull market extend into 2018.

He said: “I think there are a number of professional investors saying that this has been going on for an extended period of time. You’re right, if you look at the history of either economic cycles or stock market returns, you would want to set your clock and say, time is running out.

“But that scenario could have been presented last year and it probably could have been presented a year before that as well because, although we’ve had very low economic growth, we have had positive economic growth for an extended period of time so until these circumstances change, the status quo continues.”

Massey expects the Bank of Canada to implement three interest rate hikes this year – the BoC raised its benchmark to 1.25% on Wednesday - but says he sees no sign of the significant monetary tightening that would cause HSBC to re-evaluate their outlook of the economic environment remaining decent, albeit a little tougher than 2017.

“We’re in the sweet spot of good global growth,” he said. “Corporations are continuing to produce very good earnings numbers. They have the tailwind of tax cuts; you’ve got the structural spend that is bound to come. Things are in really good shape and we see really nothing on the horizon, other than an external shock that we don’t know about.

“The meaningful risk that is in our scenario is that things move too fast and we get a really aggressive economy and both the Federal Reserve and the Bank of Canada have to significantly raise interest rates because they see a huge pick up of inflation, but we are just not there.

“That’s the key risk that we are focused on but we’ve seen no signs of that happening in the next year.”


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